Pause, Look, Listen

Published on: 16:44PM Jan 31, 2014


Market Watch with Alan Brugler

January 31, 2014


Pause, Look, Listen…


For the most part, the ag markets went through a week of consolidation and re-evaluation, with outside factors changing the dynamic enough for the trending markets to wobble.  The Fed increased its tapering.  The US Dollar index was significantly higher, and the Dow took a couple of dives; ending the week at the lowest closing level since November 7th, 2013.  The S&P had a choppy week and ended down 7 handles, and gold was off more than 2%. The cattle market backed off a bit as boxed beef prices found their high for the time being, then the annual cattle inventory report confirmed that the national herd is in fact toward the smaller end of industry expectations; confirming fundamental support for the sharpest rally in a decade.  The wheat market tried to turn around, but still ended up red for the week.  Corn futures traded inside of an unusually narrow range of only 7.5 cents this week.  Feeders slipped toward mid-January levels, then recovered all but 95 cents of the $4.275 decline from last Wednesday’s highs.  Front month lean hogs had a choppy week, but the later months moved substantially higher.  Soybeans also posted a choppy week, but took back more than 19 cents from last Friday’s lows to end the week just 2 cents lower.  Each of these markets seemed to be in limbo, looking for the signal for which direction to move, and usually following the fundamental news.


Corn futures picked up another 3 cents per bushel this week, a 1.3% advance. The cash market continues to earn its carry. Low prices continue to work to cure low prices. Ethanol imports have been zero for the past 17 weeks, as US prices have been cheaper than those in Brazil. In fact, US ethanol is now being imported into Brazil, with most Brazilian plants having completed processing of last year’s sugar cane crop. Ethanol plant margins are still very attractive, and average daily ethanol production was 900,000 bpd last week. Ethanol stocks dropped back below 17 million barrels.  Weekly corn export sales were huge at 1.937 MMT (76.5 million bushels). Low prices cure low prices! Japan was the largest buyer at 797,800 MT.  One additional sale to China delivered back in November was rejected and resold to Spain. According to the CFTC on Friday night, managed money accounts decreased their net short position in corn by 7,208 contracts, bringing their position as of last Tuesday’s close to the least bearish reported net position since mid-July.  


Soybean futures were down .16% for the week in the nearby March contract, losing just 2 cents. Weekly US export sales were 865,800 MT including 371,000 MT of new crop. There were 610,000 MT of the rumored 1 MMT of cancellations reported, all in the unknown destinations category.  The cancelations were mathematically replaced with new purchases from China and unknown destinations for both this marketing year and the next. Total US export Commitments as a % of total exports are now at 104% of the newly revised USDA forecast for the year. The first Brazilian new crop soybean export cargos left port this week, foreshadowing an eventual slow down in US export shipments that typically begins in February and March. On the other hand, economic instability in Argentina has producers reluctant to exchange their soybean assets for unstable pesos. This afternoon’s CFTC Commitment of Traders report showed the large speculative traders lessened their net long position in soybeans by 5,530 contracts in the reporting week ending January 28. Their net long position was  121,631 contracts as of Tuesday.


Wheat futures were lower this week, with CHI off 1.68% and KC down 1.87%, while MPLS was 1.47% lower. Total US export commitments are still a larger % of the USDA forecast than usual for this date, currently at 85% vs. the five year average of 83%.  Weekly wheat export sales through USDA increased to 796,900 MT including 2,000 MT of new crop. The US also sold some SRW to Egypt, confirming prices are competitive. The EU approved 609,000 MT of new wheat export licenses, bringing the total to 17.3 MMT. Last year it was just 10.8 MMT at this time. The IGC this week hiked projected old crop world production to 707 MMT, about as expected.  New crop for 2014/15 is expected to be 697 MMT at this very early date.















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Cattle futures were unable to expand on the all time highs set the previous week. The sharp increase in wholesale and retail beef prices provoked some push back, and wholesale prices were lower. Choice boxed beef was down 5.8% dropping $7.26 between Thursday and Friday.  Select boxed beef lost 4.8% on a Friday/Friday basis. Cash cattle traded at $145-$146, a significant pull back from the record high of $150 paid the previous week. Weekly estimated slaughter was down 8.56% from the same week in 2013.  The CFTC commitment of traders report showed managed money accounts getting longer, adding 442 contracts to their net long position.  The current managed money net position is now 124,097 contracts; the longest reported managed money position since October 2010. The Friday night USDA Cattle Inventory report was expected to show a drop in herd size and in calf numbers. USDA showed All Cattle and Calves at 87.73 million head and down 1.76% from last year. The calf crop was down 1.02%.  Herd expansion was expected. Beef cow numbers were 99.31% and beef heifers kept for breeding were 101.68% of year ago.


Hog futures were off 0.17% for the week in the front month, getting a very modest assist from skyrocketing beef prices. June hogs gained 2.56% since last Friday.  Estimated weekly slaughter totaled 2.132 million head, down 1.7% from last year. Estimated carcass weights have ballooned as packers are looking for tonnage to make up for the inventory lost to PEDv.  The pork carcass cutout value was up $1.19 or 1.36% this week. USDA weekly export sales for pork slowed to 8,700 MT for the reporting week ending January 23.


Cotton futures rallied another 4.8% this week. Global ending stocks are still projected to be record large at more than 97 million bales or a 10 month surplus. Weekly upland cotton export sales for the week ending January 23 were strong for a second consecutive week at 531,600 RB.  Another 7800 RB of 2014 Pima export sales were reported. US Export commitments improved to ....% of the USDA forecast for the year. This compares to 86% for this point last year, and the 5 year average of 82%.    The CFTC weekly commitment of traders report showed managed money accounts reduced their net long position by 5,372 contracts, taking it to 43,947 contracts.


 Market Watch


We turn the calendar to February, with Chinese markets closed for Golden Week. Cattle traders will be reacting to the Cattle Inventory report issued on Friday afternoon. While not traditionally a big market mover, that report has taken on more significance since USDA discontinued the July updates of the same data. It is now an annual report. We will see the regular USDA Export Inspections report on Monday morning, and weekly Export Sales on Thursday. Ethanol production and stocks will be out on Wednesday.  February live cattle options expire on Friday., find our iPad app "AgMarket" in the app store, or call 402-697-3623 for more information on our consulting and advisory services for farm family enterprises and agribusinesses.


There is a risk of loss in futures and options trading.  Such trading is not appropriate for all individuals. Past performance is not necessarily indicative of future results.  Comments made in this article are in no way to be seen as an endorsement of futures and options trading. Reproduction or rebroadcast of any portion of this article without written consent of Brugler Marketing & Management LLC is strictly prohibited.                  


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